Suppose you owe Brown $10.00, and you owe Jones $5.00.
Then suppose Brown owes you $5.00, and owes Jones $4.00.
Then suppose Jones owes you $3.00, and owes Brown $5.00.
Now, instead of each of you going around to two other places, you three meet in a certain conveniently located room to square, or clear up, accounts. This saves time and steps. A clerk is in this room to do the sums for you.
With a little addition and subtraction he has the following:
| You owe Brown and Jones together | $ | 15.00 |
| Brown and Jones together owe you | 8.00 | |
| Therefore, you owe Brown and Jones together | $ | 7.00 |
| You and Jones together owe Brown | $ | 15.00 |
| Brown owes you and Jones together | 9.00 | |
| Therefore, you and Jones together owe Brown | $ | 6.00 |
| You and Brown together owe Jones | $ | 9.00 |
| Jones owes you and Brown together | 8.00 | |
| Therefore, you and Brown together owe Jones | $ | 1.00 |
The clerk then announces that you owe $7.00 here; Mr. Brown is entitled to receive $6.00, and Mr. Jones is entitled to $1.00. Then he gives Mr. Brown an order on you for $6.00, and Mr. Jones an order for $1.00. Nothing complex about this if you know how to add and subtract.
Now just substitute for your name, the First National Bank; for Brown's, the Second National Bank; for Jones', the Third National Bank. Then put the figures up into the thousands or hundreds of thousands of dollars in place of the small ones given above. Then name the room where you met, the Clearing House, and call the clerk who did the sums, the Clearing House Manager. Then call the orders he has given, the Clearing House Manager's checks. No matter how many banks in any one city, or how large the figures, this simple method of settling is in operation daily.
Say there are twenty banks in your city. Your bank receives through the mails, and from its local depositors, numbers of checks on the other nineteen banks in the same town. The clerk, who goes to the Clearing House, and his assistants, assort these checks into nineteen different piles. Each bank goes by a number at the Clearing House. Then these checks are stamped on the back about like this—"Paid through the —— Clearing House"; then follows the date, and name, and number of the bank which sends them. These nineteen piles of checks are added up into nineteen different totals; the checks on each bank being kept in separate bundles. The nineteen totals are added into one grand total. The clerk then starts for the Clearing House with nineteen bundles of checks; and a sheet which shows how much his bank has against each of the other banks; and the grand total it has against all the other banks combined. Therefore, at a certain hour, generally noon, on each day, twenty clerks, one from each bank, meet at the Clearing House. Each one takes his stand at his desk. When the manager taps the bell, every clerk makes the round of all the other desks, and leaves the bundle of checks he has against each bank with a slip showing the total amount of the package. When this is over, each desk has nineteen bundles of checks on it and nineteen slips showing the different totals.
Each clerk then adds up these nineteen totals, and the grand total resulting shows what all the other banks have against his bank. He then reports two amounts to the Manager of the Clearing House,—the grand total of the checks he has brought in, and the grand total of the checks which have been brought in against him.